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The Challenge: Steve Caradano, founder of
Vero Linens, thought
he'd an uncovered a firm niche--selling imported Italian luxury
linens to boutique hotels in the U.S. Then, in 2008, the perfect
storm hit: The price of the euro had risen significantly,
devaluing the U.S. dollar and reducing his company's profits. The
price of cotton spiked, inflating Vero's production costs. The
financial crisis on Wall Street led to a crumpling of the travel
and hospitality industries and upscale hotels either stopped
buying new linens or they downgraded to lower-quality brands.
"The price of cotton was outrageous, and it was clear we were
headed into a recession where our customers weren't buying nearly
as much as they did before," says Caradano, owner and founder of
the 15-employee company with operations in Michigan and Florida.
"I'm sort of looking at my situation and saying, ‘What do I do?'"

The Fix: By early 2009, Caradano realized he
needed a new sales strategy. Industry magazines and groups
reported that many luxury consumers continued to buy high-end
linens, even as their 401(k) value tanked and business and
leisure travel markets slowed. Caradano decided to try
diversifying his customer base and breaking into the consumer
market by creating an online store where people could buy Vero's
linens direct from the company's Web site. "Retail commands about
a 225 percent to 250 percent markup in luxury linens," he says.
"I was thinking, ‘I have the Internet here. I'm going to take a
step out of the value chain" and start selling online.

The transition to online sales wasn't seamless, however. The
first Web designer Cardano hired cost $25,000 and didn't
incorporate the right features into the site, he says, so he
ended up scrapping the site and starting over. In fact, Caradano
says he went through four different designers between 2009 and
2012 before getting Vero's ecommerce site looking good and
functioning correctly.

Figuring out how to generate online publicity and stand out in a
crowded market of linen makers selling online was also
challenging. He's ultimately learned that generating
word-of-mouth publicity is important in the consumer luxury
market. Caradano says he now reaches out to interior designers
who blog and other bloggers with more affluent readers in hopes
of drumming up publicity for his brand.

Though he won't disclose his exact revenue, he says the shift to
consumer sales has helped him recover so that he's at about the
same revenue he was at before 2008. One reason direct online
sales has worked for Vero is because consumers are willing to
spend more--often $1,000 versus $500--on quality linens than
hotels. While an upscale hotel will typically buy three to four
sets of sheets for every bed, the profit margin on those sheets
is far less than consumer sales, Caradano says. His profit margin
on each set sold is 50 percent more for direct online sales than
selling to hotels.

Moreover, Caradano says he travels far less than he did before.
While he still travels to hotel clients and prospective hotel
clients occasionally, he has refocused on online sales--saving
the company several thousand dollars every year.

Overall, Caradano says he plans to focus more of his time and
energy on online sales and less on the hotel business. "I never
felt the Internet would be something where people would be buying
$1,000 sheets sight unseen," he says. "But the Internet has
become such an easy accessible thing where people purchase
everything."

The Takeaway: Moving from business-to-business
sales and selling to consumers online can open up new sales
opportunities and increase a company's profit margins.